Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. In addition, assume G=0. In this case, equilibrium investment is:
A)1,500.
B)2,000.
C)2,500.
D)3,000.

Question

Quizplus · Accepted Answer

At equilibrium, Y = C + I + G. Given G = 0, Y = C + I. Substituting C = 500 + 0.6Y into the equation, we have 5000 = 500 + 0.6(5000) + I. Solving for I gives I = 1500.

Assume That Equilibrium GDP (Y) Is 5,000